Adam Kramer: Great. That’s really helpful. Maybe just one a little bit more on the ground, if you will. You talked about it a little bit earlier, but just, I think the guys are really kind of present in clear with the narrative last Fall post-Labor Day. It’s kind of what happened with the 10-year at that time and kind of what that meant for concession usage on the ground. And maybe talking what the tenure is today, maybe not quite where it peaked out, but certainly could be higher than it has been in the last number of months. Maybe just walk us through, are you seeing kind of elevated level of concessions again, are you seeing developers maybe change their behavior given where the tenure is relative to two, three, four months ago.
Michael Lacy: Adam, I’ll kick it off and kick it over to Joe. I’ll tell you what we’re seeing on the ground, and as you can see it in our numbers, concessions have been coming down. And I think, this is due in large part to the fact that a lot of these deliveries are coming at a time where you also have demand picking up. And that’s the big difference between what we experienced back in 3Q last year. You had a lot of deliveries coming when — demand was starting to go the other way. And so there’s a big difference there. There’s still more supply to come. So we’re again cautiously optimistic of where this is headed. But from what we can see on the ground today, concessions have actually come down a little better.
Thomas Toomey: This is Toomey. I’d probably just add a little bit more to it. And in the developer’s mindset, he’s looking to add this rollover loan in what terms you can get in proceeds. And so in case of last year or third quarter, you’re really faced with falling rates, slow traffic, 50 bps spike in your refi and your proceeds coming off 10% to 20%. So that you got squeezed from every angle possible, and you just drop rate to try to fill up to get some level of cash flow because what’s probably your most stressful point isn’t necessarily the rate. It’s the proceeds number. And on a debt service coverage ratio, that squeeze right there means your check to rebalance your loan, if it’s $100 million and it went from $10 million to $20 million, you don’t have extra $20 million in your pocket.
So you hit the panic button and you try to respond that way. And can that happen again unlikely but it can. And I think we want to be prudent and see how that emerges. And anyone that can figure out where the 10-year treasury is headed. Please call me because it’s a lot easier than buying lottery tickets.
Operator: Next question, Alexander Goldfarb with Piper Sandler.
Alexander Goldfarb: Hey, I think it’s still good morning out there. So thank you. Two questions. First, just looking at New York with the recent rent law changes One, do you see any DCP opportunities for you to help finance third-party office to resi conversions? And then two, with the new laws of really do you see any buildings where either they’re pre-2009 or you don’t see a sightline to exceeding the luxury rents to escape good cause that you would look to prune?
Andrew Cantor: Hey Alex, this is Andrew. I’ll take the first question and then pass it off to Chris for the second one. As it relates to DCP opportunities, we’re always open to underwriting any transactions that we see in the marketplace. To date, we haven’t seen anything yet. But we evaluate each opportunity based on its merits. And if it’s the right deal, then we’ll move forward. So at this point, there’s nothing we’re working on, but it’s not [indiscernible] by any stretch.
Christopher Van Ens: Yes, Alex, it’s Chris. Before I dive into New York rent control, maybe let me first step back, talk to the big picture a little bit more on the regulatory side. So first, I would say many of our state legislative sessions have convened for the year while we continue to see bill signed and a lot that impact our — really our business at the margin. This really was the second year in a row where major legislation like extremely restricted rent control, I would say, for example, that could negatively impact our business in a significant way. Those largely depicted in most of the areas we operate. Obviously, a good trend for the industry, trend we hope continues in the year ahead. So really big things goes out to our advocacy partners around the country.
As far as New York rent control, you talked about pre-29 — or 2009 buildings, it really seems like it will be business as usual for us right now. I mean we’ve lived with similar restrictions in California and Oregon for a number of years now. We’ve continued to generate good growth, good returns in those areas. We don’t see it being much different moving forward in New York. It’s only very rare years, I would say, where market rent growth is likely to be above CPI plus 5 or a cap of 10. Lastly, I’d say, of course, there’s always the risk of a slippery slope, right? The CPI plus 5 become more restrictive over time. Something we’ll continue to monitor. But again, we had the same concerns when 1482 was passed in California, and those concerns have not manifested today.
So all in all, New York included, we feel relatively, I would say okay, about the regulatory environment right now.
Alexander Goldfarb: Okay. And then the second question is, you guys have spoken about a pretty strong operating environment echoing your peers. It’s interesting because on the office front, there’s still a sense of corporates outside of maybe Midtown Manhattan still being hesitant to lease or to take space. So what are your property managers seeing is driving the demand? Is it really — is it just a lot of small businesses hiring and there’s a disconnect? Or are they seeing a lot of corporate jobs that are coming in to rent — employees renting apartments and therefore, that’s — you guys are indicating a sign that the corporates are going to return in a growth mode. Just trying to understand the disconnect between what the apartments and you guys are saying about healthier-than-expected demand versus some of the comments from other REIT sectors.
Michael Lacy: Hey Alex, it’s Mike. Funny enough, I actually spent last week with our teams out there in New York and ask them that same question and a lot of this comes back to lifestyle. So they’re still saying that people are coming back to the market. They just want to live in Manhattan. They want to feel the experience of being there. And expectations are that they’ve somewhat plateaued in terms of people returning to the office, but there’s still room for that to continue to grow. And if and when that happens, that will only help demand even more. But we’re continuing to see occupancy of almost 98%, and our blends are back up in that 4% range. So very strong demand in that market. And we expect that to continue throughout the summer months just given the fact that there’s not a lot of supply to speak to in the city.
You definitely have more in the — in, call it, Brooklyn, Long Island City, places like that. And as long as they don’t go to two- to three-month concession, that’s not going to pull people out of the city. And so we feel really good about New York today.
Alexander Goldfarb: Right. But Mike, across all markets that you guys are in, you’re seeing a similar dynamic. It’s just people wanting to live in the different markets, not necessarily meaningful job growth? I’m just trying to understand the difference.
Michael Lacy: Yes, Alex, I think that’s a fair point. I don’t think every market is created equal. And I think as an example, I talked a little bit about San Francisco earlier, that market is still getting cleaned up. And I think once they get that cleaned up a little bit more, people want to live down there, and it will be a similar dynamic to what we’re facing in a place like New York. But every market is created a little bit different. But overall, I’d say, yes, those sentiments are the same across the board.
Joseph Fisher: And I’d say to Alex, just as it relates to the demand. I mean, we talked about jobs and wages both coming in ahead of expectations. The consensus is well over 1 million jobs at this point in time. And so while we focus a lot on the multifamily supply picture as we should, and kind of that national picture of, call it, 600,000 or so units being delivered this year. Keep in mind, the Lion’s share housings are on the single-family side, which has seen minimal increase on a year-over-year supply basis at around 1.1 million units. You’re also seeing from an existing supply perspective, really no homes being sold, you’re back to [indiscernible] Lowe’s. And so you kind of do get into this environment where what’s available for all those jobs that are being created and therefore new households that are being created.
And when you have the relative affordability component in multi, where we are 60% less expensive than a single-family home and then if you come around with us, you can put an extra $35,000 a year in your pocket versus buying a home. That’s pretty darn compelling. And so you’re seeing renter shift gain more than their fair share of that demand that’s been put out there into the market right now. And so I think that’s a big driver of what we’re seeing.
Alexander Goldfarb: Thanks, Joe. Thanks, Mike.
Operator: Next question, Linda Tsai with Jefferies. Please go ahead.
Linda Tsai: Thanks for taking my question. In terms of April retention improving 400 bps from a year ago, is this consistent across your portfolio? Or are there regional differences?
Michael Lacy: It’s pretty consistent. Again, what we’re seeing is a lot of these actions that are put in place from what we’re doing with the customer experience project. And so I’d say relatively consistent across the board. The only difference I would tell you is in a place like the Sunbelt, historically, what we would have experienced is call it, 20% of our move-outs were leaving to buy a home. Today, that’s closer to 10%. And so significantly less people moving out to buy homes in places where it was historically more affordable. But other than that, a lot of this has to do with the actions that we’re putting in place through our innovation.
Linda Tsai: Thanks. And then in terms of automation, as you move forward, does it ever become apparent that automation is being relied upon too soon that efficacy falls short and impact service levels and then you have to recalibrate and move people back into seats. If so, how do you monitor and correct that?
Michael Lacy: Yes, Linda, that’s a fair point. That’s something we’ve experienced as we transition from, call it, Platform 1.0, where the intention was to go to that self-service model, and we reduced our headcount by about 40%. We have found that there are cases where you have to add party back that will drive value in the long-term. And so we’ve been going through that over probably the last 12 months or so. And we’re still trying to find opportunities where we can run what we call the unmanned sites. And today, we’re around 20% of the portfolio. We are adding back from the customer service type positions in the field to make sure that we’re acting all these items that we mentioned earlier as it relates to how you change that trajectory and retention. So I think there are cases where you can find opportunities to drive value and sometimes if you have to add values back.
Linda Tsai: Thank you.
Operator: Next question is [indiscernible] with Baird. Please go ahead.
Unidentified Analyst: Hi everyone, thanks for taking my question. Have your views changed for the Sunbelt and the timing to absorb all the new supply, given the strong absorption trends you’ve been seeing?
Joseph Fisher: I think as we kind of look through it, obviously, we go through the peak delivery cycle here over the next couple of quarters. And so 2Q, 3Q is kind of your peak, but it’s not a dramatic drop off. It’s going to take a while to work through the lease-ups of those deliveries. But even into 2025, when you look at overall deliveries coming that year, it’s going to be a pretty normal year in terms of relative to long-term averages with the coast actually coming in a little bit lower as they start to see it drop off a little bit quicker in terms of new starts and permits activity. So Sunbelt still stays a little bit elevated as you go into ’25. I think it’s still late ’25 that you really get the benefit of that, call it, fourth quarter of ’23 drop-off and sees up in capital markets where you saw starts fall of a cliff down.
They’re going to $200,000, $250,000 on an annualized business in 4Q ’23. And so next year is probably a little bit more normal year, still some pressure on the Sunbelt, ’26 has the potential to be a pretty phenomenal year in terms of the lack of housing that’s available out there and what that could mean for fundamentals for our sector.
Unidentified Analyst: That’s it from me. Thank you.
Operator: Thank you. I would like to turn the floor over to Tom Toomey for closing remarks.
Thomas Toomey: Thank you, operator, and thanks to all of you for your interest and support to UDR. And we look forward to seeing many of you at the Wells Fargo Conference next week and NAREIT in June. So with that, we’ll close this today. We’re always available to take your follow-up calls and take care.
Operator: This concludes today’s teleconference. You may disconnect your lines at this time, and thank you for your participation.
